Sometimes an Assignment Is Just an Assignment: Unless the Tax Court Finds It's Not (part I)

The decision of the Tax Court in On-Line Finance & Leasing Corporation v. The Queen demonstrates how complicated transactions can result in odd outcomes when litigated— particularly, where a successful interlocutory motion has an unanticipated impact at trial. The Crown’s preliminary motion to exclude evidence (the "Preliminary Motion") was held to apply to evidence the Crown sought to introduce at trial. While the trial judge made the best of a poorly drafted agreement between the taxpayer (the "Appellant") and a third party, as well as a lack of assistance from counsel when asked for submissions, the taxpayer achieved a surprisingly good result for itself. This case makes an excellent canvass of the parol evidence rule as it relates to the interpretation of contracts and breaks new ground, ruling that the Crown is bound by this rule in interpreting a taxpayer’s contract. However, the Court’s lack of clarity regarding the tax implications of a sale of a lease and the future lease payments associated with it may create confusion for leases and securitization transactions involving leased assets moving forward.

This case comment has been divided into two parts. Part I addresses leasing issues (which will be of interest to leasing and securitization practitioners). Part II, which will be published in the next issue, discusses the parol evidence rule, the motion and trial strategy (which will be of interest to tax litigators).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.